No, Blackstone Didn’t “Buy 17,000 Houses” out from under Desperate Homebuyers. And BlackRock Didn’t “Buy a Whole Neighborhood.” But Built-to-Rent is a Huge Change

Internet BS made from twisted headlines is fun to spread. But reality is a lot more interesting.

By Wolf Richter for WOLF STREET.

The social media and comment sections, including the illustrious WOLF STREET comments, are afire again with another headline, based on a headline in the Wall Street Journal that is being twisted, contorted, and spread by people who refused to even read the first paragraph. The meme is that PE firm Blackstone Group bought 17,000 houses for $6 billion, outbidding regular people, and thereby making it impossible for regular people to buy those houses amid a red-hot housing market.

Alas, what gorgeous ridiculous internet BS! Blackstone didn’t go around the US grabbing 17,000 houses, outbidding regular mom-and-pop buyers with its $6 billion war chest. On the contrary.

Blackstone bought an entire company, Home Partners of America, that already owned 17,000 single-family houses. Home Partners buys houses and rents them to tenants with an option to buy at a preset price at any time with 30 days’ notice – the company is “committed to making homeownership a reality for more people,” it says.

About 20% of the tenants have so far exercised the option to buy the house they’ve been renting, Kathleen McCarthy, global co-head of Blackstone Real Estate, told the Wall Street Journal. Given recent home price increases, for many current tenants the preset purchase price would likely be below the current market price, she said.

Blackstone Real Estate Income Trust, the fund that is buying Home Partners, invests across commercial real estate – multifamily, industrial, hotel, retail, and office – and with this acquisition is now moving into the super-hot segment of commercial real estate, single-family rentals.

This follows another internet horror story a few days ago of similarly gorgeous and irresistible allure, that went viral on Twitter and elsewhere, including in my inbox. It went something like this: “BlackRock is buying whole neighborhoods and is outbidding homebuyers by paying 20%-50% over asking price.”

This gorgeous internet BS also cited a WSJ article. Alas, the BS spreader, as is so often the case, never even read the article. Turns out, in the WSJ article, BlackRock was mentioned only once in passing at the end on some other topic. And the “buying a whole neighborhood” meme was in fact a corporate acquisition, between two companies.

What the WSJ article actually reported was that homebuilder D.R. Horton had built a subdivision of 124 “built-to-rent” houses in Conroe, a city near Houston, had found tenants for them, and then marketed the whole subdivision in December last year. Then a few days ago, the WSJ reported that the winning bid was $32 million by online property-investment platform, Fundrise LLC. Nope, not BlackRock.

The WSJ also reported that D.R. Horton had made a gross margin of up to 50% on selling that subdivision of rental properties, roughly twice the gross margin it gets from selling houses to regular homebuyers.

That’s perhaps where the ridiculous claim came from that BlackRock – which wasn’t even involved – overbid regular homebuyers by “paying 20%-50% above asking price.” Tsk, tsk, tsk.

Yup, those folks that got tangled up in reading headlines sure had a lot of fun getting angry about BlackRock driving out first-time homebuyers with this $32 million war chest.

But this sort of garbage being fabricated, contorted, and twisted out of unread articles and misinterpreted headlines obscures a huge structural change in the housing market and in commercial real estate: built-to-rent developments.

Built-to-rent has become a red-hot segment for homebuilders; a lot of money is flowing into these purpose-built rental properties. And it makes sense. These are brand-new houses marketed to renters. They’re nicely done but don’t have to offer the same quality finishes that a homebuyer expects when plunking down $400,000.  I started discussing this built-to-rent trend last year, including in my podcast THE WOLF STREET REPORT in early October.

And rather than building one house here and one house there to be rented out, homebuilders are building whole subdivisions, find tenants, and then sell the entire subdivision to pension funds and other income investors.

Big institutional investors have always dominated the multi-family market – such as big apartment buildings.

But following the housing bust, with the encouragement of the Fed, PE firms moved into the single-family rental market in a big way, buying foreclosed houses from the banks. This started in late 2011. They bought for cents on the dollar, concentrating on a handful of the hardest hit big housing markets. Blackstone was the biggest force, and later spun off its creation, Invitation Homes, as a REIT to the public. It now rents out 80,000 houses.

Others of that generation include American Homes 4 Rent. They all followed the same route: buy existing houses out of foreclosure for cents on the dollar, rehab them if necessary, and rent them out.

What is happening today is different. Investors are buying in a red-hot housing market, paying sky-high prices, even as rents are a mixed bag, dropping sharply in some big markets, but surging in smaller markets, with the risk that drops and surges might reverse as working-from-home folks are being recalled to the office.

Investors of all kinds are very active in this housing market, now buying at prices that might make it tough to rent the properties out profitably. And as D.R. Horton has found out, they’re willing to pay an arm and a leg for a purpose-built development of rental properties.

There have been all kinds of big corporate deals recently in the single-family rental market.

American Homes 4 Rent is getting into the built-to-rent segment. It partnered with J.P. Morgan Asset Management to build $625 million worth of rental houses. Homebuilder Lennar got into a single-family rental deal with investment firms that include Centerbridge Partners and Allianz, to build over $4 billion worth of single-family rental houses.

These are new houses that are going to be added to the US housing stock. They will relieve some pressure on the housing market by offering folks an alternative to buying, and they will not compete with homebuyers; they will compete with other landlords for tenants.

Rockpoint Group LLC has invested big in single-family rental companies. Brookfield Asset Management acquired a controlling stake in Conrex, which owns over 10,000 single-family rental houses in the Midwest and Southeastern US.

Yet, big institutional investors still own only about 300,000 houses in the US, or about 2% of single-family rental market, according Amherst Pierpont Securities, cited by the Wall Street Journal. And 85% of the single-family rental houses are owned by small investors with 10 or fewer properties.

Single-family rentals have probably been around as long as single-family houses. What was new in 2011 and 2012 was the entry of big PE firms with huge amounts of money buying tens of thousands of homes out of foreclosure during the depth of the housing bust.

What is new now, nearly 10 years later, is that big sellers such as D.R. Horton are making massive profit margins selling built-to-rent development to institutional investors that are all chasing after yield in a yield-starved world, and they’re doing so by paying extraordinary prices in a red-hot market, hoping for massive rent increases to make this work.

A whole industry has cropped up around single-family rentals in a veritable feeding frenzy amid red-hot home price spikes that make the whole rental-business model financially much more difficult to pull off for buyers at current prices.

And for renters, well, all those new entrants into the rental market should give them more choices in what they want to rent, and a little more bargaining power when the landlord tries to hike the rent.

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  147 comments for “No, Blackstone Didn’t “Buy 17,000 Houses” out from under Desperate Homebuyers. And BlackRock Didn’t “Buy a Whole Neighborhood.” But Built-to-Rent is a Huge Change

  1. The Bob who cried Wolf says:

    Thank you for mentioning the bust 10 years ago. Most folks don’t know how many of these foreclosed homes were in REO portfolios and sold off to investors. This has been the case for a long time, but what happened 10 years ago was horrible and probably began the Wall Street owning of single family residences as a source of income as opposed to the multi family they were used to.
    In my opinion, the bigger story with these groups and what they own is how much of the houses are off the market and unavailable to homeowners now. Some have suggested that we’re growing into a renter nation. I’m a firm believer in home ownership and hope more folks get to buy one someday.

    • Old School says:

      It seems like that at some point stock and home prices will have to be supported by income growth and not with further debt bubble expansion. You can only cheat savers so long before you lock in nobody wanting to provide for their own future.

      • Chris Herbert says:

        “At a time when households are holding record levels of household debt, the only way that household consumption expenditure will underpin sustainable GDP growth is if wages growth rises.” Everything I know about economics came from Bill Mitchell.

      • Shouldn’t that be “nobody being able to provide for their own future”?

    • The ownership society, 2003, an offshoot of Thatcher policies. Has all that been discredited? Not sure but all those subprime loans did a number. Housing will probably be part of UBI. I can hear the political debate, because it is all about choice. You want to choose where you want to live, rent or buy, it’s about equality. Obama used Sec 8 to integrate white neighborhoods.

    • gametv says:

      There is a fundamental problem in our society, where everything is financialized. So the prices of things get more expensive and people put themselves in debt to buy a house and a car and an education at prices that have been massively inflated.

      If we really want to create a great society, we should follow the example of the technology industry in other industries – create deflation. Dropping prices where industries make less profit and have to find ways to innovate and improve in order to stay in business and generating profits.

      Honestly, if I could waive a magic wand, I would just make the maximum mortgage length 15 years. That would allow more people to buy home and actually own it while they are still in their peak earning years. That would set up alot of people for retirement.

      Instead, we have allowed businesses in many areas – housing, education, medicine – to goose their profit margins by raising prices rapidly, despite a lack of innovation or creation of more value. Our housing gets built on smaller and smaller lots, cramping people in together. Our higher education system becomes infested with idealogues pushing a radical agenda and not better preparing students for life. It is all part of the liberal social lie. Liberalism doesnt care about people, it cares about power. It wants to enslave everyone, regardless of your skin color or gender or political party.

      • Stanley says:

        You think a 15-year mortgage will solve things and help the little guy? Nah, the rich always win. Commercial real estate in Canada is usually a 15 year mortgage with the interest rate being 3% – 5% variable compared to 25 – 30 year mortgages with 1.8% 5-year fixed for residential. You’re also looking at 30-50% down payments on commercial. Yet in the Greater Toronto Area, I’ve watched as industrial real estate went from $300/sq ft in late 2019/early 2020 to $400/sq ft today. The few properties that are on market are now asking $450/sq ft. Market net rents for these properties have gone from $7/sq ft in 2017 to $12-14/sq ft today. I have no idea who is affording this, I certainly can’t. Yet vacancy is showing 1% and landlords such as SMU REIT are seeing all the gains. Making residential mortgages to be 15 years would only force most people into the renter class.

      • Johnny Ro says:

        I think some really decent inflation will do the same thing as a 15 year mortgage mentioned here. My Mom paid off her 30 year mortgage in mid 1980s and her monthly house carry cost went down about $75.

    • Mira says:

      Great article ..
      Build to rent is new in Australia, but in the UK the sector expanded exponentially from 2013 with government support .. it now accounts for 1 in 5 homes built in England.
      It look like a twist on Public Housing .. the Hard Earned Tax Payer Dollar sure comes in handy, for some.
      At least it is providing rooves over peoples heads & there are many who will never buy, they are happier renting.

      • Mira says:

        The hope is that it will put the jockeys who buy & build to keep homes empty & regurgitation on the FOR SALE market out of business .. of course it will also require some sort of dissatisfied reaction from the government in the form of a money penalty I suppose.

  2. Anthony says:

    Great article. It’s still sad regardless that it’s become one big game of monopoly.

    I know a lot of these “Home Partners of America” type companies do buy blocks of real estate to hold them short term/long term to take advantage of the “premium” or “rent” if you will. It’s very similar to the options market in the financial stock market. Sorry if I’m stating the obvious. “Sell a put option contract for a specific expiration while collecting premium” or similar to the auto insurance industry.

    Thank you for listening.

    • Raging Texan says:

      “One big game of monopoly”

      Great description! And what is the one issue Democrats and Republicans agree on? That ever corporate merger must be approved! And all voting rights for companies not yet merged must be managed by Vanguard, Blackrock & Berkshire Hathaway (which is set to transfer its voting rights to creepy Bill Gates when W.B. dies).

      We already have almost just one chip company globally! Isn’t it awesome? There should also be just one landlord, one airline, one pharma company, one auto manufacturer, one homebuilder etc, right? Then put them all together!

      Why do Americans keep voting for this? Beyond me. I think this multi-decade merger mania is as big a deal as the existence of the Fed.

      Soon we will have just 3 companies left. Then 2. Then 1.

      • gametv says:

        Billionaires want millionaires to pay more taxes because they dont want those millionaires to be able to ever compete with them. It is the new world order where you can start a company only if it is a completely new business and then we allow massive consolidation until there is no competition, driving huge profits and economic windfalls for investors. But it creates a really crappy economy and a huge disparity in wealth.

        Notice that when the politicians talk about raising taxes it is almost always the marginal tax rate on wages they want to increase. Never the capital gains tax rate and they truly dont want to create a tax on net wealth for the billionaire class. Warren Buffett buys Coke stock and doesnt sell it for 50 years and pays zero taxes in all those years.

        Both Democrats and Republicans are part of the sham and the mass media (both sides of the political spectrum) are the gatekeepers to divert your attention away from this reality.

        With the coming AI revolution, many jobs will be destroyed. Who needs to go to a doctor, just have the AI bot diagnose and prescribe the right meds. Dont need to hire that trucker when the truck will drive itself. Why not hire some robots for that warehouse?

        They will come up with some way to provide a basic subsistence living for people, to appease them. But it will all be controlled by the billionaires. Your freedom will be bought cheap.

        • NBay says:

          The AI bot for prescribing drugs has some real stiff competition from TV advertising.

          OTC or RX, everyone can easily see which drugs offer the most pleasing quality of life for them personally.

          It’s called our “freedom of choice”, I believe….kids die to protect it, many after also seeing commercials that offer them a more meaningful life.

      • Johnny Ro says:

        Skynet?

        • NBay says:

          Swarming drones.

        • NBay says:

          This is a paper on swarming drones. It not a website, nor a conspiracy, and has no ads…..in fact it’s a paper considered property of US Gov’t. Well written, fairly lengthy and very very comprehensive. I read it all. Further, as it is future looking, it might provide investment ideas for those so inclined.
          I believe the world has not heard the last of it, and neither do national security experts.

          As I have said before, I do NOT believe “self crashing” cars will ever become reality. This likely will, and all the self crashing car participants involved in sensor tech, to servo, stepping motor, to software, to management, etc, will be employed easily. It is actually a FAR easier technical challenge.

          https://media.defense.gov/2020/Jun/29/2002331131/-1/-1/0/60DRONESWARMS-MONOGRAPH.PDF

      • Mira says:

        Oh for the Kings of all Things & their Kingdom of surfs.

      • NBay says:

        The “Age of Titans” series shows how unrestricted RUTHLESS corporatist activity produced the “Gilded Age”. The suffering of labor was way worse, child labor, 6 day 12 hr work weeks, no safety considerations if it interfered with production (for example, it stated 1 in 11 could expect to die (possibly included total disability, I only watched once) in Carnegie’s steel mills. Although from wealthy families, both Roosevelts had a big part in changing things, but all that has been slowly chipped away at, and arriving at the complex constantly changing, purposefully tangled and complex corporate mess we have today, which Wolf writes about. Again, never thought I’d agree with someone called “Raging Texan” but I do.

        Corporations are fascist dictatorships, dedicated ONLY to wealth extracting, larger than many nation states, allowed to exist and grow within our attempt at Democracy through lobbying and “preying on the prejudices of the people”, as Lincoln said.

        They want to END it, as all corporations do better under dictatorships.

    • abee says:

      rent – to -own is the biggest scam out there

      • Gerry says:

        Right. But how else are the private equity guys going to be able to afford that big yacht they want?

    • Rob says:

      **** this is exactly what he’s talking about, gossip BS about what a company did or didn’t do! Just so fulfill some

      Home Partners of America buys homes for a specific “renter” that has gone through their counseling sessions, meets strict income and employment requirements; and will meet loan requirements and traditional financing standards to purchase the home at some point during the lease term. The “renter” picks the house they want to lease with the option to buy on predetermined terms.

      Nowhere close to option contracts!

      Home Partners of America filled a gap in financing for people in transition after a BK or foreclosure that traditional financing has avoided.

      For their trouble, Home Partners gets above-market rent and a fully vetted renter that has a sense of ownership and will take a lot better care of the home than the typical renter.

      Rant over…

      • Beardawg says:

        Rob

        I agree wholeheartedly. I have occasionally written Lease-to-Own (LTO), more commonly referred to as a Land Contract – usually, at the REQUEST of the renter. All my SFHs are in the lower end value range. I currently have one for sale for $45K to the “renter” if that renter exercises their option in 2025. They paid $1500 for the option and the home is valued at $55K right now. If they stay the course, they will make a relative killing in 4 years.

        This Renter/Buyer had crappy credit and could not get a loan if their life depended on it. They are going to take good care of the home, or at least they will until they determine they will not exercise their option. Other renters…..don’t give a flying F*** about the home they live in – at least 75% of them anyway (sample size 20+).

        In short – there is a market need for LTO, as long as the Sellers are honest. I do admit there are many (perhaps as much as 25%) of the Sellers out there who have cruel clauses in the LTO contracts, but as long as the Renter is contracting for a fair sales price in the future, it is an “option” for the Renter/Buyer – they can’t get squat from traditional lenders.

      • Mira says:

        True .. Public Housing in Australia should have worked & it did not ..
        I needed to move house urgently .. my friends husband got me a Housing Commission house within 3 weeks .. the waiting list was 5 year long.
        The 2 ladies next door told me that the house had been empty for 2 1/2 years.
        I asked around .. “how many other Commission houses are empty in this area ??”
        The next year I purchased a home.
        We have homelessness & still substantial public housing stays empty.
        Government can’t do anything right.

    • Petunia says:

      The rent to own business is going to get a makeover courtesy of smart contracts in the blockchain.

      The parasites will no longer be content overcharging on rent or interest, or on passing maintenance cost to their renter/buyer. The parasites will next maintain an interest in the properties in perpetuity. Every time the house resells, they will receive a percentage, a royalty, from the sale of the property.

      I thought rent control would come and be enough. But I was wrong. All this needs to be stopped now.

      • Mira says:

        Hi Petunia
        I agree with you .. but “they” want to own it all .. Greed is Good .. I don’t know how well the US government runs things & do they want to be responsible for rental housing & a homes for sale market.
        Because, like anywhere else in the world, they don’t seem to be able to enforce a fairness to all agenda.
        Hand on your heart now & don’t cross your fingers behind you back please.
        Are we suck between a rock & a hard place here ??

      • Mira says:

        Our political arena amount to a bunch of fly about floozies who can’t wash dishes.

  3. ru82 says:

    Thanks. Interesting information.

    it will be interesting to see how these for rent housing subdivisions pan out in the long run.

    The stability of an subdivision typically comes from you long term home owners. They are elected to the HOA board.

    What happens when you have a lot of short term renters?

    I did read an article on how the American Homes for 4 Rent tends to neglect the maintenance of their homes when tenants report leaky pipes, nor leaky roofs, etc.

    I did a Google on American Homes 4 Rent and it appears they have built many rental communities. Over 67 communities so far. It makes sense. Instead of having you maintenance people traveling all over town, they just can focus on one neighborhood.

    This link said this is their third rental community they will have built in Charleston, SC. It seem like a pretty decent deal for renters.

    The homes at Blackstone Preserve feature upscale finishes that residents appreciate, along with the benefits of lawn care and pet-friendly fenced yards. All homes are designed with open concept floorplans, granite countertops, stainless-steel appliances, luxury vinyl plank flooring, elegant bathrooms, quality fixtures, central heating and air conditioning, and two-car garages.

    Blackstone Preserve features three-, four- and five-bedroom homes ranging in size from approximately 1,400 to 2,400 square feet. Pricing starts from the $1,700s per month. Not only does this well-located neighborhood provide residents with quick access to local job centers, dining, shopping and entertainment, it will also offer amenities such as a community playground, dog park and hiking trails.

    • ru82 says:

      I also read that American Homes 4 Rent likes to buy homes in good communities that have good schools.

      One of their representatives said that they will over pay in such communities as people want to live in a good school district and future qualified home buyers will pay rent instead of buying a home in a neighborhood that does not have good schools. Thus he was not worried about outbidding and overpaying for such homes. He said they will not have any problem renting this type of home out.

      I guess AH4R has targeted Nashville over past several years. One HOA president was making a plea to it subdivision home owners to sell their house to a real person as the rentals in that specific neighborhood has risen from below 5% six or seven years ago to over 30%.

      I guess this is the new landscape for homes?

      • ru82 says:

        Here is what I am trying to say.

        Investment Firms Aren’t Buying All the Houses. But They Are Buying the Most Important Ones.

        • Mira says:

          Fundrise’s first project, Maketto, in Washington D.C. funds were raised from any residents in D.C. or Virginia .. they could invest as little as $100, making it the first crowdfunded real estate project in the US.
          In a case like this it must be stipulated that great care will be taken to maintain property & engender good will with renters .. or else why would anyone invest ??
          There is the idea out there that you buy, rent out & bleed the property for all its worth & then sell the dump.
          Short sighted scrooges.

      • Joe Crews says:

        @ru82, this is a big concern. I live in 70 home community in SW Florida. We voted a year ago to amend our hoa rules to cap rentals at 10% of total homes at one time, plus all new buyers agree to live in home for a minimum of one year.

    • Seneca’s Cliff says:

      There is another growing problem with build to rent. The entire business model is built around the principle that if people don’t pay the rent you can evict them. Which works based on the threat of force provided by local law enforcement ( usually Sheriffs). But in many places the counter protests and pushback by renters rights groups, antifa etc. have set law enforcement back on its heels. I predict such a trend will accelerate in the near term as eviction moratoriums expire. As local law enforcement recoils from the hassle, violence and threat of counter suits they will face by aggressively evicting deadbeats these big investor groups be forced to hire their own equivalent of the “Pinkerton Men” to clear out the squatters. Or is such a thing even possible in the legal structure of modern america?

      • Thomas Roberts says:

        The law will follow the money, so I don’t expect evictions to be blocked past this year. A very big issue with blocking evictions long term, is that landlords won’t be paying the utilities and non payers aren’t exactly known for paying the utilities. When those property taxes don’t get paid, is when the cities will really get the message.

        Most non paying renters were in apartments (percentage wise as well).

        Pinkerton Men, I don’t expect to happen, but I could see many businesses donating to the local police force, this could cause corruption though. If the defunding continued.

        If “””protests””” are allowed to continue and especially if they are allowed to intensify, will lead to counter protests and that will get EXTREMELY UGLY very fast.

        • Sams says:

          People that can not pay will be evicted, the question is if it is enough people that can pay to fill the housings. At a price the landlord want/profit level.

          Donating to the local police force is a slippery slope. People could start to “donate” to have the police look the other way.

      • VintageVNvet says:

        Renters are already taking possession of SFHs in various areas by ”squatting” and resisting the lawful evictions.
        This is not new, and will accelerate in many areas currently controlled by socialist leaning, or now outright declared socialist politicians, which is also accelerating.
        Been there, done that with the squatting — on both sides of it in larger cities, part of a squatter group in UK and more recently as LL in USA.
        Not really fun for anyone, and if we still had any rental properties, would be selling them ASAP, even if RE mkt is down from recent peak.
        RE mkt is all over the place for properties of all kinds, as usual, with some still going up fast, others in same general area going down.

        • Sams says:

          History, in England UK the law used to be that the one that did hold the key to the door lock owned the house unless otherwise proved. The background was that the law was much older than any record of ownership.

          No problem for a landlord with the paperwork propper done, but inconvinient for those leaving houses empty and left to detoriate. Especiallly if the ownership for tax reasons was opaque…

        • Anthony A. says:

          One method to help renters who don’t pay the rent move on is to shut off the utilities. Tough living in the rental with no power or water.

        • polecat says:

          Ah! Return of the ‘bandos’ ..

      • Ron says:

        No renters get free legal aid my brother rented one bedroom to a couple had 5 people living there couldn’t get them to leave locked them out had to pay them 6 months rent system broke

        • Anthony A. says:

          I have no clue what you wrote. Try punctuation or just leave Wolf’s paid bandwidth for others who contribute facts and complete statements.

        • Wisdom Seeker says:

          Not that hard to read if you’re used to text messages. Translation:

          No – renters get free legal aid.
          My brother rented one bedroom to a “couple”.
          He found 5 people living there.
          He couldn’t get them to leave.
          He locked them out.
          He had to pay them 6 months’ rent.
          System is broken.

    • Mira says:

      “when tenants report leaky pipes”
      Is an old age tradition that landlords hold sacred.
      “It’s your property appreciating profit .. FOR YOU MAN.”
      Then again when it becomes unliveable it become a tax deductible item.

  4. Bricks says:

    The build to rent model works just like an apartment development deal but has a couple of added bonus features. Large Apartment development is difficult because the supply of zoned land is limited, and there is a lot on NIMBY opposition, so land prices have skyrocketed. A single family build to rent doesn’t have that obstacle.

    If there are two questions all private equity asks about a deal is what is the exit plan, and what is the exit plan. Single family units have both the potential for either a retail or a wholesale exit.

    Finally, lenders have finally bought in. When you can borrow 60% of the cost at 1.75 or 2 % from JPM , the equity return looks pretty good at a rent yield on cost of 5.5%.

  5. Dan says:

    Spreading such rumors are not by accident; RE industry is full of scammer, con artists, and in general crooked people. They spread these rumors to stoke FOMO which is working perfectly along with FED’s gobbling up MBS and providing cheap credit.

  6. Seneca’s Cliff says:

    What is the allure of the build-to-rent-to own model for investors. Is it just a back door way to sell houses to people who can’t qualify for a regular mortgage, or who have no down payment?

    • Bead says:

      Yield for the yield starved; that’s the appeal. Another unanticipated perversion.

    • MF says:

      It’s all about the down payment, closing costs and credit scores. The rent-to-own model solves for those things nicely. If the renter has more than two years of on-time payments it helps to overcome a sub-620 score. If the collateral is sold at a below-market price at the time of sale (2-5 years after move-in) an 80% LTV much easier to attain, so the cost of closing is literally just closing costs.

      This allows investors to reach home buyers who have been priced out of the larger market.

      • Mira says:

        What if the .. rent with the view to purchase .. company goes belly up .. as an estate project .. how do you ‘individual’ separate yourself disaster
        Your half way to owning outright.
        Most bankruptcy pays back 10 cents in the dollar if your lucky.

    • pj says:

      “By 2030, you will own nothing and be happy.” – Klaus Schwab WEF Great Reset chairman

      Profits are secondary to that agenda. Profits don’t mean much for big bank “investors” when the Fed just conjures up more fiat, whenever needed, to buy up whatever is needed to forward the agenda and hands it at zero interest to the buyer. The end game is to buy up everything eventually with fake fiat and hold legal title to it all, thus creating a 100% feudalist renter society.

  7. ru82 says:

    In the last post a lot of people where comparing 2006 to now. I was a huge housing bear in 2007 and 2008.

    This is a little different. It does not mean housing is overprices but I am not sure if we see jingle mail like in HB1.

    Let me explain. By 2086 there were over 5 million housing units (SFH, Condos, Townhomes) built than the population could support. That is about 3 to 4 years of excess supply that needed to be burned off.

    in 2006, in my area, there were subdivision springing up left and right. It was crazy. I always thought where are the people going to come from. I read in 2006 that Miami had 50k building permits outstanding and the population growth per year would fill 2500 housing units a year. The article said if all these permits lead to new housing units then Miami would have 25 years of inventory built by 2008.

    This is not the case this time. Housing has not kept up with population growth. My thinking is 1st, the millennials were not interested after the housing bust so builders did not build many houses. What I have seen over the past 10 years are tons of “Luxury” apartment complexes which were 15 years ago zoned for single family homes communities. The only homes being built in my area the past 10 years are not starter homes but they are the move up McMansions for people in their 40s and 50s.

    There is still no inventory for what would be considered a starter home. What I am seeing is either apartments being turned into condos and are considered the starter home and big McMansions homes that require a 6 figure income.

    I do agree that housing is overpriced but I am not sure if we will see jingle mail again and a lot of foreclosures. As Wolf has pointed out there may be a lot of vacant 2nd homes. But is there enough vacant inventory to create a crash.

    I am speaking about fly-over land so the east and west coast could be a different beast.

    • ru82 says:

      To add.

      Home Owned vacancies were rising in the mid-2000s and peaked at 3%.

      Rental vacancies hit 15% in 2007. Rising from a historical average of about 8%. That was because so many people were also buying homes if they could not flip it they tried to rent it. That plus home owned vacancies rising were warning signs.

      Right now rental vacancies are low at 7% and home owned vacancies are historically low at .9%.

      So I am not sure what to think on how this will effect future prices. These number makes me believe we are still inventory constrained….unless their is a lot of dark shadow inventory not being accounted for?

      https://www.census.gov/housing/hvs/files/currenthvspress.pdf

      • ru82 says:

        A couple of articles ago I mentioned I was raising my rent over 60% and potential renters were not questioning the rent raise is look at the average asking rent chart in the link above.

        5 years ago the average rent was $800 and now in 2021 it is $1200. That is a 50% rise.

      • Wolf Richter says:

        The Census homeowner vacancy data has been way off for many years as they define “vacant,” and because it’s survey-based, and surveys sent to vacant homes might not get a response. It’s easier to measure rental vacancy rates, but even they are hard to come by.

        • ru82 says:

          Gotcha. That makes sense. Survey are not the most accurate of measurements. Maybe that is why it really does not move up or down much as opposed to the rental vacancy.

          I do remember seeing rental vacancies doubling and rising to 15% in the mid-2000s and I was thinkin that could not be good.

        • Swamp Creature says:

          These published Census rental vacancy rates are total bull s$it. We’ve done about a dozen appraisals here in the Swamp in the last 2 months. Everyone of them were vacant. That’s 100% vacancy rate based on a limited sample. In the last 16 months since the pandemic started about 80 to 90% were vacant. I’ll take my data over the government survey BS any day.

        • Michael Gorback says:

          The info is collected by census bureau workers not just a mailed survey.

          From their web site:

          “There are about 72,000 housing units, occupied and vacant, selected in the Current Population Survey (CPS) sample. Of these units, about 61,200 are occupied and are eligible for interview each month. In addition to the 61,200, about 10,800 are visited, but found to be vacant or otherwise not interviewed each month. About half of the 10,800 units are vacant and interviewed for the Housing Vacancy Survey (HVS). The HVS is a supplement of the CPS.”

          So there appears to be more than mailed surveys.

          But the 10,800 “found to be vacant or not otherwise interviewed” and “About half of the 10,800 units are vacant and interviewed” is a bit convoluted. Who answered the door?

    • You’ve addressed several issues that don’t get enough attention. If Kevin Paffrath becomes governor of California (see PredictIt for the current odds of that happening), he plans to increase homebuilding in the state from 80,000 to 500,000 per year. That’s the kind of change that might impact supply meaningfully.

      The issue of vacant 2nd homes is related to the issue of what else are people going to do with the money if they sell? The bond market and bank accounts offer too little interest, and while home prices have mostly gone back to where they were 15 years ago, stock prices have more than doubled, nearly tripled since then. Real estate can be viewed as being the safest and cheapest asset to own, by far. If today is similar to the dot com peak of 2000, a sell-off in stocks could result in people buying more vacant homes to stash their cash, as they’ve been doing in China for many years. I hear that even the Hong Kong property market is doing well, as the takeover of a tyrannical communist government doesn’t faze the population.

      • Josh says:

        Does he plan on finding water for all of these new people or will the drought magically end when he is elected?

        • joe2 says:

          One group of politicians doesn’t systematically plan, they assume using magical thinking.

        • I don’t know how Nevada and Arizona will deal with water, but California is close to the Pacific Ocean.

        • Rosebud says:

          Read how Palo Verde nuclear (Arizona) cools its reactors. ie. Innovated technology exists to support high populations and has for years. But not just anyone’s population..that takes magic. Good clean magic, no ugly witches with bad hair!

        • David Hall says:

          There will be water use restrictions west of the Pecos River. Florida built more than 130 desalinization plants.

        • Michael Gorback says:

          He’ll chop down all the almond trees.

          H/T to WR

      • Socal Rhino says:

        Were he to win, I doubt he would have the clout to accomplish much of that. But the proposal might get him some RE donations.

    • Rice says:

      I bet in the usa there still was a severe housing shortage back in 2008. I’m guessing investors and developers got carried away in some markets because of severe housing shortages, influx of fleeing residents from other states, and massive price appreciation. And it became irresistible to miss out. But In some cities I bet there was still just huge shortages, and people fleeing due to the ridiculous housing prices. And in some cities there was becoming a glut of inventory. It will be interesting to be how this housing bubble 2.0 will play out. But I agree, it just seems like housing shortages everywhere now. Everyone needs to start pushing our elected officials to solve this housing crisis. Imo this is a national security issue as well. Out talented young tech works and other professionals need a decent place to live at realistic prices, and its going to be a massive problem if homelessness continues to skyrocket. Market forces may be able to alleviate some of these pressures, but imo there has to be a coordinated national response to this situation.

  8. Yancey Ward says:

    This is just a rumor I am starting, but I have heard that Blackrock has bought the entire next year’s supply of Snickers Bars.

    • Mark says:

      Toilet paper. Blackstone caused that TP shortage last year.

    • IdahoPotato says:

      And WD-40 as well. My local HD had a shortage yesterday.

    • Anthony A. says:

      As long as the M & M supply is not disturbed, I will be OK. Snickers bars tend to pull my dentures out when chewing.

  9. Nathan Dumbrowski says:

    Great topic and article. Will these companies become the mortgage servicing agent or leave that to “professionals”? How does government backed MBS impact the risk of these types of purchases. Seems very shadow based. If borrower A buys a house from company B that is a government backed loan held in title by MBS and serviced by company C. Who takes the hit if I default?

    • ru82 says:

      Good question. My guess is nobody. The FED will buy the bad MBS just like they did starting in 2010 when they bought up all the Bear Sterms and Lehman Brothers MBS. That way the GSEs, who backed the MBS, can stay whole and not go bankrupt.

  10. Art says:

    QUESTION #3: With the revelation of Blackrock buying up single family homes and making homeownership and rentals unaffordable, what is the average person to do? My son and his family and my husband and I were getting ready to purchase homes to settle down in but have now been priced out of most markets and rentals are also hard to come by that we can afford. We live in California but are wanting to get out of Dodge.
    Sharon

    ANSWER: I am not a liberty to say who is and who is not our client. What I can confirm is that Blackrock has bought more than 20,000 homes in Florida under $500K. They are buying for cash and this is the result of artificially low interest rates. Central banks have created a disincentive for buying government bonds. This is going to come to a head and we will see interest rates rise because big money is looking at the return on renting out homes rather than investing in bonds.

    • Jeff says:

      Your “question” is pretty much the opposite of Wolf’s article.

      So tell me, where can I read more about the “20,000 homes in Florida bought by BlackRock”?

  11. NG says:

    So, the American dream goes down drain

    • Rosebud says:

      The Increase Math-ers at Blackstone are brought in to play monopoly with testicle clever: Wolf runs the manure machine. Ox and horse, chicken and pig. Gates the farm. AqualuuuuuunnNG the irrigation system…

    • MiTurn says:

      Or it goes down-market. I see people putting cedar exteriors on RV trailers and calling them tiny houses. Tiny houses make single-wide mobile homes into an upgrade.

    • Depth Charge says:

      “They call it the American Dream because you’d have to be asleep to believe it.”

      -George Carlin

    • historicus says:

      With the ability to save……the Fed punishes saving….deliberately

  12. Gian says:

    “Kathleen McCarthy, global co-head of Blackstone Real Estate, told the Wall Street Journal. Given recent home price increases, for many current tenants the preset purchase price would likely be below the current market price, she said.” How is this not a win for renters who QUALIFY to buy a home? I am in escrow with one of renters of 10 years and the appraisal came in $12K less than the purchase price and I am certain I could get even more in this market. However, he has been a good renter, needs and earned a break so why not? Landlords are mostly vilified on this site by losers who blame them for their pathetic existence, but not for us, you would be homeless. Investors/landlords do not prevent homeownership, your lack of motivation, envy and poor choices relegate you to the rental abyss.

    • SnotFroth says:

      Be careful, even renters can vote, tax laws can be changed, and as you mentioned big asset holders tend to get less public sympathy than the average schlub.

    • Chris Herbert says:

      Ahh the tried and true mythologies never die. “The banker and the poor man have an equal right to sleep under the bridge.”

      • Michael Gorback says:

        As it says in Isaiah 11:

        “The wolf also shall dwell with the lamb, but the lamb won’t get much sleep”.

    • Ron says:

      Well said

    • Dave says:

      So investment/institutional grade purchasers buy to extract a profit through rent. This activity then leads to price increases which cause affordability issues for home buyers. All because the fed is bailing out institutional investors by flooding the market with bail outs and low interest rates which causes these investors to chase yields

      Somehow, the slovenly wage earner is to blame yet again.

      The GOOD NEWS?! The wage earners will end up paying for this as they always do (via taxes and inflation). Taxes and inflation are regressive in nature.

  13. ru82 says:

    Plus they have a financing advantage over the individual buyer.

    While normal people typically pay a mortgage interest rate between 2 percent and 4 percent these days, Invitation Homes can borrow money for far less: It’s getting billion-dollar loans at interest rates around 1.4 percent. In practice, this means that Invitation Homes can afford to tack on an extra $5,000 to $20,000 to the purchase price of every home, while getting the house at the same actual cost as a typical homeowner. While Invitation Homes uses a mixture of debt and cash from renters to buy houses, its offers are almost always all cash, which is a big leg up in a competitive market.

    • Janna says:

      “Investors/landlords do not prevent homeownership, your lack of motivation, envy and poor choices relegate you to the rental abyss.”

      Easy there. Many people willingly choose to rent. I am one of them. I live in a crappy city with one of the highest homicide rates in the country. It’s so bad our police chief resigned. We stay for the money. However, as we get closer to retirement, we have a quick escape plan and we intend to use it.

  14. Gian says:

    Correction – $12K more, not less.

  15. davie says:

    Bravo,
    a well formulated thesis, saying the unsaid, separating the wheat from the chaf, with minimal moralizing about how the markets should be immutable.

    As has come up in the discourse lately, homes are getting more valuable because not owning a home is getting much worse.

    Following the Uber-AirBNB-Sharing Economy of everything, it’s fundamentally changed evaluations of commodities. Things aren’t being valued on their production value, but their rental market value over time. Everything is being optimized to be utilized all the time, and every user is charged a 30% up cost every time they come along.
    When a speculator can pencil out breaking even on a housing/car/clothing/bicycle purchase sooner than an individual can pencil out the cost of owning, the speculator is going to be pushing the prices up.

    But god forbid we claim market forces incentivizing slumlords, ferrymen, bridge trolls, and other rentiers are pushing up prices, it’s gotta be those gosh darn stimmies causing inflation left and right.

  16. Sound of the Suburbs says:

    Oh dear, someone has discovered how capitalism really works.
    Bad news for Blackstone.

    What is capitalism anyway?
    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
    What sort of capitalism is this?
    It’s the small state, unregulated capitalism that existed in the past.

    What on earth is he talking about?
    There were three groups in the capitalist system in Ricardo’s world (and there still are).
    Workers / Employees
    Capitalists / Employers
    Rentiers / Landowners / Landlords / other skimmers, who are just skimming out of the system, not contributing to its success

    Ricardo was part of the new capitalist class, and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.

    Disposable income = wages – (taxes + the cost of living)
    Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.
    Employees get less disposable income after the landlords rent has gone.
    Employers have to cover the landlord’s rents in wages reducing profit.
    Ricardo is just talking about housing costs, employees all rented in those days.
    Low housing costs work best for employers and employees.

    Of course, employees get their money from wages and it is the employers that are paying the high housing costs, via wages, reducing profit.

    Identifying the unproductive group at the top of society didn’t go down too well.
    They needed a new economics to hide the discoveries of the classical economists, neoclassical economics.

    • Sound of the Suburbs says:

      Let’s get back to the three groups of classical economics.

      The interests of the capitalists and rentiers are opposed with free trade.
      This nearly split the Tory Party in the 19th century over the Repeal of the Corn Laws.
      The rentiers gains push up the cost of living.
      The capitalists want a low cost of living as they have to pay that in wages.

      How does free trade work anyway?
      The UK knew how to prepare for free trade in the 19th century because they used classical economics.
      The West didn’t how to prepare for free trade in the 20th century because they used neoclassical economics.

      How did the UK prepare to compete in a free trade world in the 19th century?
      They had an Empire to get in cheap raw materials; there were no regulations and no taxes on employees.
      It was all about the cost of living, and they needed to get that down so they could pay internationally competitive wages.
      UK labour would cost the same as labour anywhere else in the world.

      Disposable income = wages – (taxes + the cost of living)
      Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.

      Ricardo supported the Repeal of the Corn Laws to get the price of bread down.
      They housed workers in slums to get housing costs down.
      Employers could then pay internationally competitive wages and were ready to compete in a free trade world.
      That’s the idea.
      You level the playing field first; then you engage in free trade.

      Of course, that’s why it’s so expensive to get anything done in the West.
      It’s our high cost of living.
      Disposable income = wages – (taxes + the cost of living)
      Employees get their money from wages and the employers pay the cost of living through wages, reducing profit.

      Everyone pays their own way.
      Employees get their money from wages.
      The employer pays the way for all their employees in wages.
      Off-shore from the West ASAP to maximise profit.
      The cost of living is way too high.

      The West supported free trade not realising how it tilted the playing field against us.
      Having some idea how capitalism actually works does help.

  17. billytrip says:

    Having been in the single-family business for a while (now retired) I can tell you that I am very skeptical of the idea of big businesses managing SFH. They better have layers of hands-on managers who know what they are doing and work for the owners best interests or all the price inflation in the world won’t save them.

    • historicus says:

      Misallocation
      Malinvestments all looking for some type of return due to the fake interest rates

    • VintageVNvet says:

      Agree, like totally bt!
      Remembering the days in the 1960s, when my boss and I ”refurbed” apts and SFH rentals in the SF bay area,,, and fairly often were called to refurb the very same apt and SFHs over and over,,, including to the point of replacing significant amounts of plaster or gyp board as well as the wiring and plumbing and fixtures and appliances.
      That and the ”squatting” folks just refusing to move and putting kids and old folks out front to deter the enforcement of evictions, etc., make the whole concept of renting homes of every kind more than challenging,,,, and now we have the withdrawal of major funding of police, etc.
      That alone should be sending shivers through every ”investor” in the RE mkt everywhere,,, although I have read that some of the squatters in Berlin have been evicted recently — after 40 years or so!!!

    • Paulo says:

      We occasionally get some down Islanders moving in that snap up properties and crow about their plans for B&Bs and what great deals they were so smart to achieve!!! Ann Cleeves calls them soothmoothers. Then the reality hits of being the ‘landlord’ without knowing their tenant base or community. There are folks around here you just don’t rent to.

      I see one place was recently sold and another is now for sale. The young guy who bought the 1st place doesn’t know he paid too much and the house floods out every few years. A lady I know just had breast cancer treatments and these same people approached her and worked on her to sell….severe illness don’t you know’ “we’re doing you a favour”. Needless to say, these people are a disease in our community.

      Being a landlord is not fun. If you have a good tenant they should be appreciated and treated well. I don’t see a property management company with that skill set, or any hired manager with that authority. People are not numbers on a balance sheet. A bad tenant will move on and make sure they get their money’s worth on the never returned damage deposit.

      • billytrip says:

        Exactly. Qualifying tenants is job one. If you don’t get that right you are screwed from the outset.

        Property managers have strong incentive to place someone, ANYONE in the rental. Compromises in the area of tenant selection can be deadly to your financial health. If you don’t get that done by someone on a short leash and using strong criteria, you will fail. And if you outsource it to someone for a commission, you are guaranteed to fail.

  18. NotDeadYet says:

    In New Jersey/New York, we had private companies buying blocks of foreclosures, sight unseen, repairing them and offering them on the retail market. In my experience, all foreclosures require some repairs and renovation and this can run into substantial cost. I asked one of the field techs how their company could buy so many, sight unseen and survive such risk? He told me they do lose money on some foreclosed homes they purchase, but they make it up on the total homes they purchase, repair and sell. I suppose on the next round of foreclosures due sometime after this housing bubble ends, small time investors will find themselves swimming with the big fish.

  19. Say It Aint So says:

    In simple people terms this is all about interest rates and time value of money…as long as rates are where they are now this type of investment will have appeal to the large firms such as BlackRock who can withstand some renters not paying their rent. Sooner rather than later interest rates must rise and that is when the challenges will begin.
    As my Dad used to always say, “sooner or later you have to pay the piper and for most they would rather pay sooner.”

  20. breamrod says:

    my brother is in commercial real estate business in Atlanta. Back in 2010 or 11 he told me that private equity was buying most of all of the foreclosed homes that the banks had on their books at .40 cents on the dollar. I asked him if we could get in on it maybe buying 1 or 2. Nope the banks are not interested in that he said. As a previous commentator said ” we not in the tent”

    • Anthony A. says:

      I bought one SFH in 2010, but I bid on dozens only to never get an “honorable mention”. The one I won was from an owner in California and the house is in Texas. Somehow, that slipped under the rug, I guess.

  21. Winston says:

    “They’re nicely done but don’t have to offer the same quality finishes that a homebuyer expects when plunking down $400,000.”

    A vandalized home in this area (Colorado) had an asking price of $490,000 and sold for an undisclosed amount with multiple offers. TV news video of its interior struck me as crappy, cheap construction and in my state of birth it would have had a very hard time getting half of that. Do actual “quality finishes” even exist any more in sub-bazillion dollar homes?

  22. joe2 says:

    I think the WSJ readers, while maybe missing the specifics of the article, instinctively see the crux of the matter. Looking at just the gozintas and gozoutas of the housing market black box, I see massive cheap FED money competing with individual savings going in and an increase in corporate owned housing going out. Sure it’s not direct and there are complex paths and many subsystems, but it is analogous to your arguments that FED money props up the stock market.

    Although expand the system under analysis to include any new government regulation, and anything could happen.

  23. Xabier says:

    Fact: BlackRock, Vanguard, Rothschilds, etc, ARE the government.

    And at present they are moving, rather rapidly, to a new economic and social model.

    Fact: you won’t like it, one bit.

    • Fkinpssd says:

      100%

      Every one of them should be dealt with harsly, justified by the injustice done to the public by their families for the last 100 years to enslave us into their labor force before we were even born and for keeping it up. Making the rich with capital richer and skewing our money supply and manipulation of the markets. Down with the FED banks down with the 13 ruling families.

      I truly wish more people understood that.

  24. Micheal Engel says:

    1) Between 2003, 2004 and 2005 new houses completion reached 6M with 300M population.
    2) Home builders had to sell fast to get whatever they could in order
    to a potential bust.
    3) Build to sell is different than build for yield. Build a pension fund portfolio, with an option to sell the creme of the lot at inflated retail market prices to few paying customers, before selling at wholesale prices at 4% – 5% profit margin, because 5% is good enough.
    4) In 2007 Household debt: GDP reached 100%. Today $14.6T : $22T = 66%, much better.
    5) Today the 10Y yield is < 1.5% to enable lower mortgage rates. If the Fed raise rates to 5% – 6%, the RE bust will be worse than 2008.
    6) The 10Y had to go down from 6% – 8% in order to save the RE market.
    7) In 2011 Blackrock, Sam Zell… were buying at below wholesale prices to saved the RE market. Instead of 30Y – 40Y expected recovery, the RE market is booming in 2021. RE is a source of pension for small investors, to replace the saving accounts and because u can't trust the crooked stock markets.
    8) But the sun is not shining in SF. SF commercial and condo RE suck.
    9) If the flyover boom will be over, the 10Y yield might drop to NR, like in Europe, so the mortgage rates will be zero and stay there for a decade,
    in order to save the RE market.
    10) If JP send rates higher tomorrow to fight inflation, the RE market will instantly collapse along with a GDP bust like never before.

    • Rosebud says:

      11) KFC Full Moon tomorrow too. Solar eclipse and lunar eclipse In the bag already.

  25. Micheal Engel says:

    Top 5 RE billionaires :
    1) Donald Bren 82Y, Ca, $17B, Irvine co.
    2) Stephene Ross, 79Y, NYC, $7.6B, related co.
    3) John Sobrato, 80Y, Ca, $6.7B, The Sobrato co.
    4) Edward Roski, 80Y, Ca, $5.5B, Majestic Realty co.
    5) Sam Zell, 78Y, Il, tie @ $5.5B, Equity Group Investment.
    $$$ BBB CCC
    25) Donald Trump, the first RE billionaire president, 74Y, the white house,
    $3.41B, The Trump Org.

    • Rosebud says:

      In 1991 I refinanced my house, bought Japanese mutual funds with half, and gave the rest to my Ex, bless her.

      Lets see those RE billionaires beat that!

      • mgold-8 says:

        Then what happened? I mean what became of the Japanese mutual funds. And what did your ex do with the other half of the money. Did your ex help you pay back the loan? Enquiring minds want to know, thanks.

  26. Island Teal says:

    Good article. Lots of interesting comments.
    Personally sold my last rental – 4 Plex – in 2015.
    The buyer, had an owner occupied loan, went on to rip off any departing tenant for 100% of deposits by falsely claiming that they didn’t transfer in the sale. Tenants fell for the lie. Place now looks like a child care facility w crap and junk everywhere. Yep…I miss it 😂😂

  27. DR DOOM says:

    I have to disagree to some extent with the Head Honcho at WS. When one strips away all the internet bs about the evil intent of Black Stone and the 17,000 homes by using a critical and jaded eye what is left is this. Black stone owns and controls in a beneficial manner 17,000 homes. All we need now is fricking sea bass with lasers and a Mini-Me .

  28. Citizen AllenM says:

    The really funny part is that real estate is a crappy inwestment. LOL

    Way too much capital chasing return, instead it will foster immense losses down the road. As usual.

    Capitalism, this time it really is different!

    Ask the Japanese how well these asset bubbles work out. Of course, smart money should be fleeing to the hinterlands, instead of bidding against each other.

    Honestly, I don’t know whether to laugh or cry about it.

    Stock market casino, real estate casino. Meh.

    Leverage kills, and we have the most in history!

    How many people are living debt free? Fewer and fewer…

    Debt peonage is the name of teh game, America.

    One giant Potterville, with competing hedge morons providing financing.

    Someday this war’s gonna end…just like cheap money and low interest rates.

  29. Yamo says:

    Most markets are already dead, just they don´t recognize it

  30. Petunia says:

    As someone who lost their home during the financial crisis in Florida, I had a front row seat to the emergence of the mega landlords. Here are some of my observations, having rented from a mega landlord.

    Many dismiss the trend because mega landlords own a small percentage of homes nationwide. That is true. However, they purchase disproportionately in specific towns or communities. The concentration is not random, and it’s not just for economies of scale. The concentration allows them to gain control of HOA boards and even of local politicians and police departments through donations. This concentration allows them to have an influence greater than the same number of individual homeowners.

    These mega landlords also create subsidiaries to provide services for the homes they own, like pool and gardening services. Those services don’t just displace the previous workers, they compete with them actively, and eventually may dictate, through their influence, that communities only use their service providers. Expect to lose jobs to their service providers, and expect the price of those services to explode.

    Since school districts make up the largest share of real estate taxes. Expect them to pressure local governments to cut spending on schools and services. It improves their operating numbers and allows them to pass on more service charges to their renters.

    In terms of how they choose renters, they charge for credit reports and background checks, but may not really care about the results. They care about cash flow and the money they “invest” is not their money. They make money off of the cash flow and how it contributes to stock prices.

    If I were buying a home, I would avoid any HOA with more than one or two rentals of this type. I would avoid master plan communities that have an entire subdivision with these rentals. I would avoid a town with a large number of these rentals too.

    • Paulo says:

      Best comment in a long while. Makes sense about the manipulation.

      Sounds like the Ben Gazaara character in the movie Roadhouse. Of course Patrick Swayze got to beat him to death and ended up with the prize.

    • Micheal Engel says:

      1) Mega vs mega. Dominant snakes eat weaker snakes in a bag, is good for rent.
      2) Snakes entering late, in fomo trade, will have a negative equity in a market drop.
      3) Mega landlords distress and vacancies are good tenants. They will surrender to crazy demands and behavior.

  31. They’re going to Uberize housing. Good cheap transportation, and the same for shelter. We’re heading for a brave new world, and maybe Uber drivers can afford a rent to own home.

    • Mr. House says:

      “You will own nothing and you will be happy”

      They freaking told yinz guys the plan, isn’t it obvious?

  32. ru82 says:

    I have read article that having a mom and pop landlord is better than a WS landlord.

  33. Phoneix_Ikki says:

    Thank you for clearing the air on this topic Wolf. Being more progressive leaning in my belief, it’s disappointing I see the Black Rock buying up everything narrative being play out across progressive independent media. I guess we have and maybe always have been a society of easy headlines narrative, just like 08 was all about subprime…blah blah but when you dig deeper into the data and root cause, the narrative falls apart pretty quickly. Most people are probably too lazy to dig that deep though.

    While it’s easy to pin the blame on Black Rock and trust me I am no fans of any hedge funds but as Randy Patrick on Youtube pointed out before, mom and pop investor makes up by far the largest % of the investment properties.

  34. Heinz says:

    “What is new now, nearly 10 years later, is that big sellers such as D.R. Horton are making massive profit margins selling built-to-rent development to institutional investors …” WS article excerpt.

    Brand subdivisions of new houses purpose-built solely for rental market– to me that is more disturbing than that false meme that big investors are buying up whole neighborhoods of existing SFH to convert to rentals.

    Every rental house a homebuilder builds is one less conventional owner-occupied house provided for the market (this assumes construction companies do not have unlimited resources– a likely assumption).

    If new rental houses are indeed more lucrative to build than owner-occupied houses you can see where that is headed.

    What’s more, SFH are not nearly as efficient and cost-effective in furnishing housing as multi-family dwellings (I realize many potential renters love the idea of a house vs apartment– but can society really afford to put everyone in their own house, either rented or mortgaged)?

    Are we that rich? I think not– we are actually an insolvent nation living on borrowed time.

  35. California Bob says:

    This ‘consolidation’ is becoming pervasive. I just visited my long-time optometrist for my yearly; I’d been seeing him for 38 years–we got a mulligan on last year–and he seemed unusually brusque (we both like cars, and his assistants have had to pull him away to break up our conversations). I casually asked when he was going to sell and retire–he’s in his early 70s–and he replied he recently sold out to a PE firm, but still manages the business. He seemed unusually harried, my guess is he has a quota or minimum revenue requirement in the contract. This will be my last visit to him (plus, he’s in the SFBA and I now live in the Central Valley). I don’t blame him, he’ll probably work a couple more years then retire comfortably, but it’s one less independent business for me to patronize.

    • Mr. House says:

      Private equity also does this with urgie cares in rural areas.

      One ring to rule them all. So when do you guys stop thinking its a conspiracy theory?

      If the banks had failed in 08, think how many different owners we’d have of so many assets right now, which is the exact opposite of what the TPTB want.

    • Michael Gorback says:

      PE firms are eating medical practices like Pac Man. In typical PE fashion they buy them up, consolidate them, and start squeezing out the juice.

      I don’t know how the current deals work. Back in the 90s they bought up practices claiming consolidation would provide “economy of scale”. I heard about guys getting bought out for a couple of million and still keeping their practices.

      I was jealous until I learned they were paid in stock restricted to no sale for 2 years. By then their practices were destroyed and the stock was worthless.

      I’m not surprised your optometrist is grumpy. He probably realized he owed his soul to the company store.

      I was lucky. Once I went solo in 1998 I was able to run a Norman Rockwell practice for 22 years. I used to have this picture up in my my office https://img1.etsystatic.com/000/0/6503510/il_fullxfull.281376963.jpg

    • Happy1 says:

      PE is eating dentistry, optometry, and medicine. The model is typically stock and cash with a multiple of 8 to 11 of EBITDA that vests in 5 years. The PE firms have more leverage with insurers, they require more in productivity, hence your friend has no time to talk, and they utilize lower paid mid-level providers. All fostered by cheap Fed money.

  36. Micheal Engel says:

    QQQ : week #13, day #13.

  37. timbers says:

    Blackstone isn’t buying these 17,000 homes Home Partners?

    Several articles not just WSJ says it is. And the articles I read on that did more than “just mention” Blackstone. They clearly say Blackstone bought these homes. If so, I still believe this is just one example of investment firms benefitting from Fed QE and ZIRP that will be taking a growing % of property and squeezing working folk.

    If I’m the so called “BS” spreader…where do I collect my award?

    Is it a Wolf Beer Mug?

    • Brent says:

      Mr Richter is out of beer mugs,he mentioned it in his previous post.Takes 4-6 weeks to replenish the supply,container & beer mug chip shortage etc…

      May I suggest you to contact Dr.Fauci office ?

      In the arcane world of military acronyms (which is itself an acronym – Abbreviated Coded Rendition Of Name Yielding Meaning) BS also stands for Bogus Science,Blowing Snow,Battle Shout…

      Dr Fauci can spare one BS beer mug,they are crowding his table 😀

    • Angel says:

      Be really careful when reading anything particularly mass media. They don’t seem to vet anymore and often it’s basically the same article shared by multiple outlets feeding off one another. If it’s wrong, misconstrued, inaccurate, full of propaganda &/or a partial story, it just keeps going instead of being corrected or countered. There’s way too much group think and crazy amounts of propaganda being compounded by divisive shaming, gaslighting and dehumanization. It’s making it really hard to be situationally aware, know what the truth is and know what’s really going on.

      • Phoneix_Ikki says:

        Yup, 13 years later, majority is still repeating MSM garbage narrative of subprime was the main culprit of the last housing bust. Easy sell for the masses again, always easy to punch down at those filthy subprime borrowers so it’s nature to blame them as well for the financial collapse.

        • Angel says:

          Yup. Given how wonky and ignored all the data, trends and theories have been for awhile and given the completely irrational behaviour by the masses, I’m thinking that right now watching the mass media might actually be more indicative of what to expect until this mania is over. At the very least my hair may grow back in where I’ve been scratching my head in confusion and the face palm mark might disappear. Ops. no scratch last. Undoubtedly, the face palm mark will remain for awhile.

      • Wisdom Seeker says:

        +17,000!

        (Number of the day here on WS.)

        As the old saying goes, the lie is halfway around the world before the truth can get its shoes on.

        At least, whatever the mass media are going on about, you can be sure that they are getting it wrong. And given their clear bias, you often know which way they get it wrong.

        It’s a shame people don’t value learning the truth as much as they value having their biases confirmed by someone in a perceived position of authority.

        I think it was always this way, but the internet amplifier makes it more obvious and faster.

    • Wolf Richter says:

      Blackstone bought a corporation that already owned the homes. Blackstone did NOT take these homes off the buyers’ market because they were ALREADY on the rental market, with tenants in them. Blackstone did NOT compete with homebuyers. That’s a huge difference. Duh!

      • Lynn says:

        I would assume most buyers are PE and corporations sort of laying low at this point. I think “Blackstone” is now popular shorthand for “large corporate buyer” at this point in time. Or large private buyer. Sort of like “Frigidaire” used to be for any refrigerator.

        However, is there any information as to what percentage of total homes bought by BlackStone are prebuilt for rentals and what percentage are bought on the market or directly from banks or MBS holders?

  38. Brant Lee says:

    D R Horton sure had good timing on this deal. I’m sure he started putting this development together before 2020, then it worked into a goldmine. It’s nice to know the opportunities are still out there for the working guys with a vision of industry, not just those sitting home on their bums in front of a computer screen.

  39. RedRaider says:

    Do built-to-rent deals work in a state with rent control? Are pension funds starved for yield headed for even deeper trouble investing in them?

    • Happy1 says:

      You think PE firms would be dumb enough to buy homes 8n a state with rent control?

  40. gary says:

    Sorry Wolf, I think you do a good job of untangling details, but maybe you are “missing the forest for the trees.”

    I believe this is the critical line that everybody is fussing about:
    “…hoping for massive rent increases…”

  41. Big G says:

    Maybe this could be #1 of the Great Reset “8 Predictions for the World in 2030”. You will own nothing and Like It!!!

  42. Micheal Engel says:

    British navy ship HSM799 was shot x3 times in the Black Sea, after entering inside Russia territory.

    • Angel says:

      Damn….that’s not good. I say we preemptively make them repeat kindergarten before the big little boys do something stupider. Of all the options to get out of this financial mess, war is at the bottom of my list. Too bad my preference doesn’t matter which makes me wonder what the powers that be preferences are.

    • gary says:

      No it wasn’t you lying *#*$*##.
      A few warning shots were fired that’s all

  43. SpencerG says:

    I have owned residential rental real estate before and my parents have done so for decades. Never again for me!

    If corporations want to get involved in that then God Bless Them! But I suspect they are going to find it a difficult buck to make.

  44. Poor like you says:

    Sounds like the same ol’ scheme:

    1.) make a bunch of garbage as cheaply as you can
    2.) con someone into buying it at the highest, most morally suspect price you think you can get away with
    3.) sit back on your huge pile of cash and watch idiots trying to rip off other idiots until someone is left holding a steaming pile of s**t they paid too much for.

    One advantage of being a sociopathic monster who doesn’t care about ruining people’s lives is that when the mob comes looking for you, they can’t find you because you live on a secret moon base made of gold, or something..

  45. GW says:

    > Blackstone Real Estate, told the Wall Street Journal. Given recent home price increases, for many current tenants the preset purchase price would likely be below the current market price, she said.

    And that is exactly where the potential profit lies. Now it is anyone’s guess whether a debt loaded LBO company will patiently wait for renters to save the money to buy or whether it would not be way more profitable if the renter would vacate the property before this happens. And this is not a theory but what is happening in e.g. Berlin.

  46. cd says:

    obama foreign ownership and tax changes that allowed chinese hedge funds ability to buy more than 1 home also helped

    the give away of penney on the dollar foreclosures was the biggest heist of wealth in the history of mankind, the fed, treasury, wall street and govt. pigmen created their 3 card monty and stole homes, everyone forgets that FASB 157-8 never restarted, MERS title issue swept under

    lots of these pigmen should hang or at least tar and feathered….

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